Macroeconomic conditions

The crisis caused by the pandemic led to a decrease in GDP of -2.7% over the year, for the first time since the transformation. The highest drop in GDP took place in Q2 (by 8.4% y/y, accompanied by a two-digit drop in consumption and investments), while in Q3 a rapid increase in activity took place (GDP: -1.5% y/y and +7.9% q/q) achieved thanks to lifting of the restrictions. The lack of material restrictions allowed the “unfreezing” of consumer demand (individual consumption increased by 0.4% y/y) and reinstated the functioning of international value added chains, which translated into the regrowth of exports. The pandemic did not stop the expansion of Polish exporters. Exports grew throughout the second half of 2020, and Poland’s share in the European trade grew systematically. An increase in coronavirus infections in Q4 and the reintroduction of anti-epidemic restrictions once again led to limiting business activities, but to a lesser degree than in spring. GDP dropped by 0.7% q/q and 2.8% y/y. At the end of the year, a clear rift was visible between a very good condition of the industrial sector and a distinctly worse condition of the services sector. The crisis caused by the pandemic, which encompassed nearly the whole economy in spring, at the end of the year only covered selected branches of the economy, mainly the travel, accommodation, catering and culture sectors.

The labour market’s reaction to the recession caused by the pandemic was measurably limited by the Anti-Crisis Shield introduced by the government in cooperation with the National Bank of Poland (NBP), and the Financial Shield provided by PFR. The shields offered the possibility of asking employees to be on standby, shortening working hours (with an additional payment towards salary), and conditioned the scale of non-reimbursable aid to companies on maintaining stable employment. In effect, despite a significant drop in business activity throughout the year, the unemployment rate increased only slightly and stabilized at 6.2% at the end of the year (2019: 5.2%) after a higher than the seasonal benchmark increase in the number of unemployed in spring (an increase of 120 thousand in Q2).

Average employment in the enterprise sector dropped to a minimum in June when it was 3.3% lower y/y. Employment data accounted for, among other things, the option used by employers to temporarily reduce the number of working hours. In effect, the scale of decrease in the number of persons employed (and in consequence the increase in unemployment) was much lower. In further months the drop in employment was smaller. In December the number of FTEs was 1.0% lower than in the corresponding period of the previous year. However, the strategy of maintaining the employment level despite the drop in demand adopted by companies had a negative impact on the rate of growth of remuneration – the average salary in the industry sector grew by 5.4% y/y in Q4 – approx. 1.5 p.p. slower than before the outbreak of the pandemic.

Despite the unprecedented scale of the economic slowdown, CPI inflation exceeded the NBP target inflation rate for most part of the year and only dropped to 2.4% y/y in December (compared with 3.4% y/y at the end of 2019 and 4.7% in the peak period in February 2020). Base inflation, after eliminating food and energy prices, increased almost throughout the whole year and reached 4.3% y/y in November. In December, it fell to 3.7% y/y compared with 3.1% y/y at the end of 2019. The increase in base inflation reflected the increase in administered prices and higher prices of services connected, partly due to transferred costs of anti-epidemic actions to consumers. The form of inflation processes (persistently high base inflation despite disinflationary environment, low fuel prices and dropping food prices) differentiated Poland from the Euro Area countries, which at the same time were fighting with deflation.

Domestic public finances entered the crisis in a good condition compared to other EU countries. Poland responded to the crisis with one of the largest direct fiscal packages in Europe, whose implementation forced amendments to the Budget Act (in place of a balanced budget, a deficit of PLN 109.3 billion was planned). The anti-crisis actions and the cyclical decrease in revenues increased the fiscal deficit (ESA) to 6.9% of GDP in 2020 from 0.7% in 2019.

In this context, the central and local government budget results (for the whole year) came as a positive surprise. Estimated data shows that the budget deficit stood at PLN 85 billion with a local government budget surplus of PLN 5.6 billion, the latter being PLN 7.3 billion higher than in 2019 (driven by a drop in capital expenditure of local governments of 5% y/y). In 2020, public debt (ESA) reached 57.5% of GDP.

Podczas pandemii, w koordynacji z działaniami fiskalnymi, RPP znacząco obniżyła stopy procentowe. NBP wprowadził też dodatkowe narzędzia wspierające gospodarkę. Stopa referencyjna w trzech ruchach została łącznie obniżona o 140 pb., do nowego historycznego minimum na poziomie 0,1%. Wśród pozostałych narzędzi największy wpływ na gospodarkę miało wprowadzenie możliwości skupu na rynku wtórnym obligacji skarbowych i papierów gwarantowanych przez Skarb Państwa. W ramach programu QE do końca listopada 2020 roku NBP skupił obligacje (Skarbu Państwa, PFR i BGK) o wartości 107 mld PLN (w tym 3,2 mld PLN w IV kwartale).

Od czerwca w komunikatach po posiedzeniach RPP pojawiała się ocena, że brak silnej reakcji kursu walutowego na spowodowany przez pandemię kryzys i luzowanie monetarne ogranicza ożywienie gospodarcze. Potwierdzeniem faktu, że NBP preferuje słabszego złotego, były przeprowadzone w drugiej połowie grudnia interwencje walutowe osłabiające złotego (po raz pierwszy od 2010 roku). Według szacunku NBP, łącznie podjęte przez bank centralny działania antykryzysowe ograniczyły skalę spadku PKB w 2020 roku, a w 2021 roku skala ich pozytywnego oddziaływania na gospodarkę wzrośnie do 1,1 p.p.

During the pandemic, in coordination with the government’s fiscal actions, the Monetary Policy Council (MPC) has significantly reduced interest rates. The NBP also implemented additional tools supporting the economy. The reference rate was reduced three times, in total by 140 bp. to a new historical minimum of 0.1%. Among the remaining tools, an introduction of the option to repurchase Treasury bonds and securities guaranteed by the State Treasury on the secondary market had the largest impact on the economy. Under the QE programme, the NBP repurchased bonds (issued by the State Treasury, PFR and BGK) with a total value of PLN 107 billion by the end of 2020 (including PLN 3.2 billion in Q4).

Since June, in the communiques following the meetings of the MPC, prevailed an opinion that a lack of strong reaction of the foreign exchange rate to the crisis caused by the pandemic and quantitative easing restricted economic revival. The currency interventions conducted in the second half of December (for the first time since 2010), which led to the weakening of the PLN were a confirmation of the fact that the NBP prefers a weaker zloty. According to NBP estimations, the anti-crisis actions conducted by the NBP limited the scale of the drop in GDP in 2020, while the scale of their positive impact on the economy is expected to grow to 1.1 p.p. in 2021.